What To Expect From Applied Materials Q2 Results?

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Applied Materials

Applied Materials (NASDAQ:AMAT) is expected to publish its Q2 FY’23 results on May 18, reporting on a quarter that is likely to see the company post little revenue growth. We expect revenues for the quarter to rise by about 2% year-over-year to about $6.4 billion, coming in line with estimates. We expect that earnings will stand at about $1.85 per share, slightly ahead of consensus estimates. See our analysis of Applied Materials Earnings Preview for a closer look at what to expect when the company reports results.

Applied Materials expects its Semiconductor Systems’ revenue to come in at about $4.84 billion, marking a roughly 8% increase year-over-year. Now, semiconductor fabs have been slowing down their budgets for new equipment in recent quarters, following rising supply and easing demand for chips as Covid-19 tailwinds ease for the consumer electronics industry.  However, there are a few bright spots in the industry, with the shortage of semiconductors used in the automotive space and in factory equipment apparently persisting. This is causing big players such as Taiwan’s TSMC to expand production capacity, supporting demand for machinery from the likes of Applied Materials. Applied’s AGS (Applied Global Services) segment – which provides equipment installation support and warranty extended support, is expected to see revenue decline marginally in Q2 to about $1.34 billion, due to the impact of U.S. trade regulations.

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Now, is Applied Materials stock a buy ahead of earnings? We think it is. Applied trades at about 16x forward earnings, which is a reasonable multiple in our view. While the near-term demand for the company’s products could be somewhat muted, the semiconductor industry is likely to expand considerably driven by trends such as generative AI and cloud computing. Moreover, Applied has also been looking to expand its revenue streams. Earlier this year the company introduced Centura Sculpta, a machine that can reduce the amount of time that semiconductor fabs spend on lithography, taking on Dutch giant ASML which is best known for its extreme ultraviolet lithography technology. We value Applied Materials stock at about $125 per share, which is about 10% ahead of the current market price. See our analysis of Applied Materials Valuation for a closer look at what is driving our price estimate for the stock.

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Returns May 2023
MTD [1]
2023
YTD [1]
2017-23
Total [2]
 AMAT Return 1% 17% 253%
 S&P 500 Return -1% 7% 84%
 Trefis Multi-Strategy Portfolio -1% 7% 238%

[1] Month-to-date and year-to-date as of 5/10/2023
[2] Cumulative total returns since the end of 2016

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